A double-dip recession or soaring interest rates and inflation have been ruled out by UK business chief Richard Lambert.

But the director-general of the CBI, has warned that the next few months will be rocky for firms due to higher VAT, public spending cuts and companies slowing down inventory spending.

He said: “There are bumpy times ahead for businesses in Britain.

“For a start, the pace of economic recovery could slow quite markedly in the first few months of 2011.

“The VAT increase will be taking effect, and the construction sector will start to feel the pain of public spending cuts. The positive impact of the inventory cycle may also start to wane, with companies having gone some way to refilling the stock pipelines that had been run down so sharply in the recession.

“All this will be playing out against the background of continuing turmoil in the Eurozone.

“The exposure of our banks to the most troubled countries is modest, but our recovery prospects would be damaged if the contagion were to spread across our major trading partners.”

Mr Lambert said CBI forecasts suggested growth in private sector investment and trade would start to pick up in the second half of the year and continue into 2012.